Bell growth expectations despite global GDP slowdown

Global equities boutique manager Bell Asset Management has projected that growth in company earnings, especially in the small to mid-cap sector, will continue to provide opportunities for investors.

This comes as the world prepares for a global slowdown in GDP growth, as concerns grow over rising inflation and slowing growth in China signalled by a drop in property market activity.

“If you look at the most recent Chinese GDP figures, growth came in at 4.9% in Q3, down from 7.9% in the previous quarter,” said Ned Bell, Chief Investment Officer of Bell Asset Management, at a virtual event held in Melbourne.

“That’s a big drop, and if you think property investment represents 30% of Chinese GDP, it’s a big part of the Chinese economy.”

Bell Asset Management has forecasted global GDP will grow by 4.5% in 2022, after it was expected GDP would grow 5.9% this year. China’s growth rate is likely to drop from 8.1% this year to around 5.5% in 2022.

However, the rising oil price and sharp surges in other commodity prices signal a steadily growing inflation rate that is also affected by the prospect of a rapid pick up in wages.

“Wage inflation is becoming more of an issue, and we believe this is going to be an issue for some time,” Bell said.

“One of the side effects of COVID-19 is that you have a lot of people rethinking their lives and their willingness to work, and this is causing some real labour constraints across multiple geographies and multiple industries.”

Bell also said the earnings outlook across most markets remains positive despite the changing economic environment. He highlighted the 37% growth in earnings per share in 2021 for companies in the MSCI World Index but said the market had only recovered around 30% from pre-COVID levels.

According to Bell, small and mid-cap companies recorded the highest gap between earnings growth and share price recovery.

“Earnings have had this amazing recovery, but the market hasn’t necessarily kept up,” he said.

“In the small and mid-cap market, the disconnect between the earnings recovery and the price recovery is effectively around 40%. That represents a massive opportunity.

“The earnings recovery is being driven by a revenue recovery driven by government measures to help the economy but also a lot of the temporary cost reductions driven by Covid-19 are likely to become more permanent. I don’t think this is very well understood by the market generally.”